FOREX-Dollar sinks to lowest in a month

LONDON, March 16 (Reuters) - The dollar sank to a one-month low, while some surprise hints on the chances of a rise in UK interest rates drove sterling higher on Thursday as investors digested the fallout of a second rise in U.S. rates in three months.

Investors snapped up the greenback at the start of European trade, judging it looked cheap after sharp falls following the U.S. Federal Reserve's failure to point aggressively to further rises in the official premium for holding the currency.

But the dollar struggled to make more progress through the European morning and waned as New York traders arrived at their desks.

The euro was also buoyed by a Dutch election defeat for far-right leader Geert Wilders which eased broader fears of a populist drift in European polls this year.

Yet the mood was still edgy and there was buying of the market's favourite safe havens for capital. The Swiss franc gained almost half a percent against the euro while the yen inched back into positive territory, touching a more than two-week high.

"The Dutch election result was consistent with the opinion polling, and obviously the Fed has delivered a rate hike, but in its most dovish form," said Bank of America G10 currency strategist Kamal Sharma.

"Ultimately, the near term is going to be dominated by French election risks. So we still see that the euro is likely to trade lower heading into those elections."

Dealers said much of the dollar's fall overnight looked to have been investors taking some profit on the large bets taken on the currency since November and again in the last fortnight , in expectation that the Fed would raise rates more sharply than previously expected going forward.

Investors lodged large bets on the dollar after Donald Trump's U.S. presidential election win last year, expecting his mix of tax reform, capital repatriation and new public spending to raise inflation in the United States and in turn drive Fed rates higher.

"The Fed did to some extent disappoint yesterday when it comes to forward guidance... but is obviously remaining on track with tightening monetary policy," said Manuel Oliveri, currency strategist at Credit Agricole in London.

"So even if we saw yesterday a reaction lowering the dollar on the back of unchanged forward guidance, the market still regards the dollar as a buy on dips as the outlook for the U.S. is actually ahead of other economies."

The dollar index recovered all its losses since the close of U.S. trade to stand roughly steady earlier in the day at 100.59. , but lost momentum and fell to 100.41.

It was also roughly flat on the day at $1.0725 per euro and 113.35 yen.

The pound hit a two-week high of $1.2373, up 0.6 percent after the Bank of England kept interest rates on hold but gave a handful of hints in voting results and its minutes that it might raise them soon.

Outgoing policymaker Kristin Forbes unexpectedly voted to raise rates and the minutes said that some among the majority who kept them at a record low felt it would take a slight further rise in inflation for them to follow suit.

The pound also took back all of its gains against the euro, to stand more than half a percent higher on the day at 86.80 pence, after the publication of the minutes. (Reporting by Ritvik Carvalho, editing by Jeremy Gaunt and Pritha Sarkar)